4. The VAT return Flashcards
What notice sets out records to be kept
VAT Notice 700/21 Record Keeping for VAT
Basic records related specifically to VAT are:
- Copies of sales invoices.
- Originals of purchase invoices.
- Credit (and debit) notes.
- Export documents.
- VAT Control account (which summarises all items of input and output tax and acts as the source of data for the VAT Return.
Additional business records involving vat that should be kept include:
- Bank statements (paying in slips and cheque stubs)
- Purchase orders and Delivery notes.
- Cash books and petty cash books.
- Purchases and Sales day books.
- Ledger Accounts.
- Payroll records.
- Computer printouts and reports.
- Annual Accounts.
Records for output tax (biz buys and sells on credit and manual sys)
- Sales Day Book (records credit sales; compiled from sales invs.)
- Sales Returns Day Book (records credits: ret’ns, correct’n, PP disc)
- Cash Book - receipts side (records details of receipts not on credit. Receipts for credit sales should be ignored since already dealt in DBs)
Records for INPUT tax (biz buys and sells on credit and manual sys)
- Purchases Day Book (Records all purchases made on credit)
- Purchases Returns Day Book (Records any credits received)
- Cash Book - Payments side (Records any cash purchases, credit purchases should be ignored as dealt in Purchases Day Book)
- Petty Cash Book (Records small expenses)
Bad debt relief rules?
Which Box?
> 6 months and < 4 years 6 months
Must also have been written off in accounts and transferred to separate Bad Debt account.
Add amount to Box 4
VAT Account reconciliation with VAT Return.
Important internal check for any Vat-registered business.
Calc in VAT control account of amount due should always equal VAT return.
If not needs investigation. Errors include:
Misposting to the Vat account or errors and omissions on the Vat return.
Error correction reporting threshold.
The greater of:
£10,000
1% of the quarterly turnover figure in Box 6 on the Vat Return for the period when the error was discovered, up to max of £50,000
If the NET value of all errors is within threshold then adjust Box 1 or 4 of the current Vat Return.
If the net error is over the threshold need to make a “voluntary disclosure”
Box 1
Total Vat due on Sales and other outputs.
Include fuel scale charges.
Include VAT on Zero-rated SERVICES from other EU member states.
Adjust for Credit notes (and errors below threshold if applicable)
Box 2
VAT due on acquisitions from other EU member states
Box 3
Total of Boxes 1 and 2.
Calculated automatically
Box 4
Total VAT reclaimed on Purchases and other Inputs.
Include tax on EU SERVICES / ACQUISITIONS (Reclaiming from 1 and 2)
Include credit notes (and correction of errors below threshold)
Box 5
Box 3 minus Box 4
Automatically calculated
Box 6
Total of Sales and other outputs excluding any VAT.
Will include:
- Exempt, Standard and Zero-Rated supplies.
- EU supplies
- Non-EU supplies
Adjust for credit notes
Box 7
Total of Purchases (Inputs) excluding any VAT.
This includes:
- Exempt, Standard and Zero-rated purchases.
- Acquisitions from EU member states.
- Acquisitions from Non-EU
Adjust for credit notes.
Box 8 and 9
8
Total of Supply of GOODS and RELATED services (ex Vat) to EU.
(Related means things like freight and insurance)
9
Total of Acquisition of GOODS and RELATED services (ex vat) from EU.
Making tax digital.
Make it easier for biz and individuals to get tax right & keep on to of their affairs.
All tax will be required to comply with MTD …. VAT is first.
Introduction on 1/4/2019.
Requirements of MTD
*Use compatible accounting software capable of:
Keeping and maintaining accounting records
Preparing VAT returns
Communicating with HMRC digitally via HMRCs API Platform.
An API is a digital platform that allows different software applications to communicate with each other. (Messenger between 2 programs)
MTD registration
If over threshold and registered biz must continue MTD even if falls below threshold. (Unless deregisters for VAT completely or meets other exemption criteria in which case no longer required to keep digital records).
MTD not just about digitally filing VAT returns…
…also requires biz to keep and preserve records digitally.
Voluntary MTD
May still choose to follow MTD even if not required.
Must notify in writing in advance of period wishes to start.
Can also withdraw from MTD if notifies in writing in advance of period wishes to withdraw.
MTD exemption
HMRC
- Not reasonably practicable because of age, disability, remoteness or any other reason. (♿️ 🏝 )
- Business is subject to insolvency procedure. (🧨)
- Business run entirely by practicing members of religious society whose beliefs are incompatible with using electronic communications or keeping electronic records. (Amish ? 🧑🏼🌾)
MTD digital link
MTD requires digital link… no manual copying by hand or manual transfer of data between 2 or more pieces of software.
Can use spreadsheet. May need bridging software.
MTD soft landing period.
1 year until 01/04/20
Can use cut and paste as a link between software programs
Payment of VAT
Must be electronic.
HMRC recommends DD but can use Bacs or other electronic.
Online submission and electronic payment extends due date 7 calendar days. (Does not apply with Annual accounting scheme)
If paying by DD collected 3 working days after the 7 extra calendar days.
If fails to pay cleared funds or have sufficient funds for DD may be liable for surcharge for late payment. (Date Calculator available on HMRC)
HMRC repayment on VAT
Normally 10 working days
21 if there’s a query.
Annual accounting scheme due date
2 months after end of period
Surcharges for late returns and payments
Known as ‘in default’ and may have to pay surcharge.
First time in default - will be sent warning known as ‘Surcharge Liability Notice’ which states if biz pays late again in following 12 month period (known as the “surcharge period”) the biz may have to pay a surcharge.
The default surcharge is a percentage of the unpaid VAT - usually 2%
If biz continues to make late payments it will be charged increasing penalties of 5%, 10% and 15% of unpaid VAT.
Important - failure to pay VAT due or penalties imposed is a criminal offence and can result in prosecution.
Net errors over the limit - voluntary disclosure
This should be advised to the Error Correction team on Form VAT 652 or in a letter.
Amount(s)
Period of error
Whether error in Input or Output (or both)
Whether error was in favour of biz or HMRC
VAT errors:
If more than 4 years ago must be disclosed on VAT 652 regardless of size.
Note that biz can use VAT 652 form even if error below threshold if they want to.
.
Failure to disclose vat errors however innocent could result in….
A misdeclaration penalty.
No misdeclaration penalty can be charged if voluntary disclosure made
Must keep accounting records how long
6 years
Where does Bad Debt Relief go?
Input tax
Box 4
Fuel scale relief goes…
Vat amount box 1
Net amount box 6
